Ameriprise Financial Inc. will be kicking off the new year in court as the company prepares to face employees who claim that it breached its fiduciary duty with allegedly imprudent and costly 401(k) options.
Attorneys for the financial services firm and lawyers representing a group of Ameriprise retirement plan participants are due to meet in federal court in Minnesota on Jan. 7 for an initial pre-trial conference.
A court filing dated Dec. 21 laid the groundwork for what looks like a busy year of litigation for both groups, starting with the January conference and culminating in a trial date as early as Dec. 9, 2013 — as proposed by the plaintiffs — or July 31, 2014, per the recommendation of Ameriprise attorneys.
Lawyers on both sides anticipate bringing in slate of experts for the upcoming trial, with as many as six for the plaintiffs and five for the defendants.
The financial services industry is closely watching the case, as Ameriprise's position as a manufacturer and a plan sponsor makes it unique in the realm of retirement plan fee litigation.
“If you look at the fee cases, you might have had financial services firms dragged in as a service provider, but I haven't seen manufacturers and their affiliates brought in as the primary defendant,” said Jason C. Roberts, chief executive of the Pension Resource Center. He is not involved with the case.
And while previous cases that focused on retirement plan fees point to a lack of process on the part of the plan sponsor for fund selection, this case appears to concentrate on allegations of self-dealing, Mr. Roberts added.
Roger Krueger, a participant in Ameriprise's retirement plan, along with a slate of other current and former participants in the 401(k), initially filed suit in September 2011 alleging that the firm had breached its fiduciary duty under the Employee Retirement Income Security Act of 1974 by offering proprietary fund options that paid fees to Ameriprise and its subsidiaries.
The plaintiffs also contend that Ameriprise chose to offer the costlier R4 share class of its RiverSource funds when it could've used the cheaper R5 share class. They claim the costlier share class added 25 basis points in costs for “plan administrative services” and a service fee of up to 10 basis points.
Workers also claimed that the fees for other available fund options were more expensive than comparable choices from The Vanguard Group Inc. For instance, Ameriprise's target date funds cost 84 to 92 basis points in 2010, 74 basis points more than the Vanguard option, according to the complaint.
The Ameriprise participants claim that the 401(k)'s annual investment in RiverSource and Ameriprise Trust Co. averaged $500 million from October 2005 to the present. ATC, the trustee and record keeper of the plan, was sold to Wachovia Corp. in March 2007, and the latter provided trustee and recordkeeping services to the Ameriprise plan.
In response, Ameriprise asserts that the claims are without merit because the investment options were appropriately chosen and maintained in the best interest of employees and that the fees were reasonable in light of the services provided. The defendants also argue that they did not commit any prohibited transactions because the transactions were exempt from ERISA's prohibited-transaction regulations.
Though Ameriprise had filed a motion to dismiss the complaint, last month the court permitted most of the claims to go forward, including the claims of the fiduciary breach and prohibited transactions — with the notable exception of an attempt to recover the profits the company and its compensation and benefits committee made from the alleged fiduciary breaches under a theory of federal common law unjust enrichment.
Calls to Chris Reese, a spokesman for Ameriprise, and Mark Boyko, an attorney for the plaintiffs, were not immediately returned.